1998 Congressional Hearings
Special Weapons
Nuclear, Chemical, Biological and Missile




Prepared Remarks for Ambassador David L. Aaron

Commerce Under Secretary for International Trade

Before the House Subcommittee on

Telecommunications, Trade and Consumer Protection



May 14, 1998



Introduction



Chairman Tauzin and members of the subcommittee, thank you for the
opportunity to offer testimony today on U.S.-China commercial
relations and to report on my recent visit to China and Hong Kong. I
would like to focus on three elements of my trip: (1) summarize my
dialogue with Chinese leaders and highlights of my visit, (2) share
with you my view on the strategic choice China must now make in it's
reform efforts, and (3) discuss where I think our commercial relations
are headed in the lead up to the Summit.


I had not been in Beijing since 1978 when I accompanied VP Mondale to
China to support negotiations to normalize relations. Following that
trip, I sat with President Carter in the White House as Deng vividly
described his vision of China's future. Two decades later, I can tell
you that it only takes a few days in China to appreciate the great
foresight our leaders shared back then.


Although differences remain, I came to realize during my visit, as did
Secretary Albright and Ambassador Barshefsky during their visits, that
senior level dialogue now occurring in the period between both Summits
is producing encouraging results and advancing an important common
agenda.


Secretary Albright said at the conclusion of her visit last week that
the dialogue we now enjoy with China is "... a product of change and a
generator of change." Concepts and ideas like the rule of law,
transparency, predictability, respect for the environment, and market
access clearly are moving China, and our overall economic dialogue, in
a more positive direction. I believe the most important challenge in
our relationship is to encourage China's leadership to base its reform
efforts on these concepts. With this in mind, I will first report on
my dialogue with Chinese leaders in April.


Dialogue on the Deficit and Results of the Visit



I was one of the first U.S. officials to meet with China's new senior
economic lineup following the National People's Congress. I spent most
of my time with my Chinese counterparts in Beijing and Shanghai
discussing how our growing trade deficit and China's reform agenda are
related and how a more open China can be a positive force for change
on both fronts.


Our deficit, $50 billion last year, has increased more than five-fold
since 1990. It cannot continue on its current path. It is followed
very closely by the people of the United States, the Administration,
and particularly the Congress. It is unsustainable.


In my discussions of this issue with Chinese economic leaders, there
was mercifully little argument over the data as we had in the past.
The surge of the U.S.-China trade deficit is clear from their numbers
as well. China's trade data shows that since 1985, China's exports to
the United States have grown at an average annual rate of 25 percent,
while China's imports from the United States have grown at an average
annual rate of only 10 percent. U.S. data shows almost exactly the
same trends.


From their statements, it seems that the Chinese economic leadership
has begun to appreciate that increasing imports from the United States
is in both our countries' interest. This is an encouraging change in
sentiment. However, we must see real and sustained progress, both in
terms of more immediate U.S. export sales and more lasting
commitments, in the WTO.


While progress was made during my visit, and that of Ambassador
Barshefsky and Secretary Albright, I am less encouraged by what we
have in hand today. China will have to make a much greater effort in
advance of the Summit if our commercial relationship is to contribute
to a successful outcome.


My visit was a useful step in that direction. I witnessed nearly $200
million in signings, including more than $170 million in contracts for
U.S. power generation, information technologies, and air conditioning
equipment, and more than $25 million in investments for a
U.S.-Shanghai based food venture.


I also advocated on behalf of dozens of exporters interested in
billions of dollars of projects. In support of these and thousands of
other U.S. exporters who seek a more lasting foothold in the China
market, I emphasized the importance of improving the business climate
by eliminating restrictions, making rules less arbitrary and
procedures more transparent.


My Chinese counterparts made clear to me that economic reform was
their principal preoccupation. Overhauling debt-ridden state
enterprises, introducing sweeping banking reforms, slashing the
government bureaucracy, and creating an adequate social safety net for
the millions left unemployed are tasks of unprecedented proportions.
The potential impact on unemployment (18 to 19 million unemployed in
urban areas and 100 million unemployed in the countryside) and other
potential challenges to China's social safety net make Premier Zhu's
plan a serious gamble.


Only Mao's radical campaigns -- the Great Leap Forward in the late
1950s or the Cultural Revolution in the mid-1960s -- compare in scope
and impact. But those convulsions were aimed at, indeed required,
isolating China from the world. This revolution is aimed at bringing
China more fully into the world, a circumstance that makes the
ultimate outcome of current reforms all the more important for
bilateral, regional and even global relations.


And unlike the turmoil of earlier eras, a fundamental requirement of
these reforms is a measure of tranquility in international relations.
Hence China's leaders are determined to achieve better relations with
the United States and a positive Summit.


Strategic Choice



The United States supports this reform effort because we believe it
will create a China that is a stronger partner for both peace and
prosperity. But as it pursues reform, China faces a critical strategic
choice. There are two paths to reform.


On the one hand, China can implement economic reforms domestically but
resist further opening its economy to the world. For those favoring
this approach, openness is seen as antithetical to reform. It is
driven by fear that competition from imports and foreign investment
will exacerbate economic dislocation, particularly unemployment. But
this option will slow reforms as it has done throughout Asia, not
hasten them.


On the other hand, China could make openness the ally of reform.
China's reform program is based on the realization that government
control and direction of economic enterprises is inimical to growth
and progress. It is prompted by the recognition that competition is
the antidote to bureaucratic inefficiency. So is this only true for
the domestic economy? Clearly not.


What American businesses want, and what I advocated with Chinese
officials, will further support reform. With a more open climate for
imports and investment, China can spur economic growth, create new
jobs, and improve the business climate. Greater market access for
foreign goods and services and a more open environment for foreign
investment are essential stimulants to achieve the domestic
restructuring, the efficiency, the job generation, and the growth
China seeks from reform.


Beijing, Shanghai, and China as a whole need only look south to Hong
Kong to observe that market openness, good governance, and respect for
the rule of law, are the qualities that have enabled it to prosper as
well as weather Asia's financial storm. Drawing from principles that
have made Hong Kong's economy so successful is essential for China's
future. Hong Kong's unwavering faith in open markets has been
reaffirmed. Its experience has proven that sound economic and fiscal
policies are the only path to continued prosperity, even in times of
regional turmoil.


Lead up to the Summit



Many quarters of the Administration are forging ahead with what will
be important contributions to the Summit and future relations overall.
To support these initiatives, we at Commerce are actively mapping out
a blueprint to advance commercial engagement, which was first laid out
by Secretary Daley and former Chinese Minister of Foreign Trade and
Economic Cooperation Wu Yi. The blueprint was conceived last October
under the 11th session of the U.S.-China Joint Commission on Commerce
and Trade (JCCT).


In Beijing, I had the distinct pleasure of co-hosting the first
sub-ministerial review in the JCCT's fifteen year history. We reached
agreement on an ambitious fall program which includes seminars in
project finance, standards, testing and certification, commercial law
and other areas. To follow-up the Summit, Secretary Daley will host
the new MOFTEC Minister Shi for the 12th session of the JCCT in
Washington. We also are working on broader aviation, housing,
infrastructure, and insurance initiatives, all of which have important
implications for the Summit.


Our WTO and broader economic discussions have also intensified in
recent weeks. Following her visit, Ambassador Barshefsky reported that
she was pleased with the overall tone and seriousness displayed by the
Chinese and believes that we have reestablished momentum. Similarly
Secretary Albright was encouraged by the WTO discussions and a broad
range of economic issues as a result of her dialogue with Premier Zhu.
Each emphasized that measures a given country is asked to undertake as
part of the WTO are consistent with the wider reforms China is now
pursuing.


It is clear that we are making progress. However we need to do more on
matters dealing with industrial and agricultural tariffs,
distribution, professional, financial and telecommunications services.
We need to redouble our efforts to foster basic WTO principles such as
national treatment, non-discrimination, state trading and
transparency. All of these are indispensable elements of a sound
commercial package.


And so during the next month, we will intensity our economic dialogue.
As agreed upon at our last summit, a Chinese energy delegation will
meet early next week with officials from the Office of the Vice
President and the Departments of Commerce and Energy to flesh out the
details of the Energy and Environment Initiative. CEA Chairman Yellen
visited Beijing early this month to discuss macroeconomic issues. And
on May 26, Secretary Rubin will co-chair the U.S.-China Joint Economic
Commission in Washington, D.C. He will be addressing many of the
economic and banking issues of greatest concern to China's reform
minded leadership.


Conclusion



U.S.-China commercial relations have often been one of the few rays of
sunshine on a sometimes clouded horizon. Cooperating on IPR
enforcement, pressing forward on greater market access and
transparency, and collaborating on commercial projects helped sustain
a continuing dialogue. Today, the burgeoning trade deficit has come to
dominate our commercial relationship. China will have to make a
greater effort to improve this part of our relationship if it is not
to cast a shadow on an otherwise brighter future.


The Summit provides an important opportunity, as do China's reforms.
These reforms are being undertaken in the most open climate in the
history of the People's Republic. Success will be realized only by
even greater openness -- benefiting both the U.S. and China, and
solidifying our commercial relations well into the future.


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